Czech annual inflation eased to 1.4% in July 2013 from 1.6% the month before as food and housing prices grew at a slower pace and telecommunication prices continue to decline, data from the statistics office showed. The reading was below the forecast made by analysts polled by CTK news agency, who forecast inflation to speed up to 1.7% in July.

In monthly terms, consumer prices in the country fell 0.2% in July following a 0.4% hike in June. The monthly drop was mainly due to a 13.8% fall in vegetable prices with potatoes sliding by 29%.

Food and non-alcoholic beverage prices dropped 2.2% on the month in July reducing the annual growth to 5.7%. Housing and utility prices edged down by 0.3% m/m in July also bringing down the annual growth to 1.2%. Post and telecommunication charges continued to decline falling by 11.9% y/y in July.

The July annual inflation was below the central bank’s forecast of 1.7% and remained below its annual target of 2%. The central bank cut its main two-week repo rate to 0.05% in November and said it will keep the rate at the current record low level until inflation pressures increase significantly.

In its latest inflation report, published today (August 9), the central bank said annual headline inflation will stay slightly below its 2% target by the end of 2013 before falling more markedly below the target at the start of 2014 when the first-round effects of changes to indirect taxes will drop out.

The reading bolsters arguments of the central bank for koruna sales to further relax the monetary conditions to support the economy that has been in recession since mid-2011. With rates now close to zero the central bank has repeatedly reiterated plans to weaken the koruna but rate setters are divided on the timing of such sales that will be the first in more than a decade.